Arrgghhh this will show those pesky pirates -- we'll cut one of our hottest items!

Netflix
revolutionized the movie rental industry when it began offering
unlimited movie rentals for a monthly flat rate. Since 2007, a
$16.99 (plus tax) monthly membership fee has granted you access to up
to three movies at a time, with unlimited exchanges. While
Blockbuster rushed similarly priced plans to market, it was arguably
too
little, too late -- Netflix was already a major player and owned
many key patents.

Despite that resounding success, all is not
rosy for Netflix. Netflix has been under fire from movie
industry, which claims its unlimited deliveries of new rentals is
fueling rampant
piracy of films.

Under pressure, Netflix just announced
that it has incredibly consented to enter a deal with Warner Bros.
that will essentially begin
to kill its new release program under the premise of fighting
piracy. Under the agreement, Netflix agrees to not offer new
releases until 28 days after the DVD/Blu-Ray release goes on sale in
stores.

Netflix COO Ted Sarandos appears to have
wholeheartedly embraced the idea, which he originally suggested to
studios in 2007. Netflix likely gets a major kick back from the
deal, though; if the terms of Mr. Sarandos's original pitch hold
true, Warner Bros. will cut its inventory costs with Netflix (the
amount it charges the company for its movie stockpile) by 50 percent.

Describes Mr. Sarandos enthusiastically, "Creating a
rental window is not a punitive action. It’s a decision that the
retailers and studios can make together. If the studios can entice a
rentailer to create a rental window, I believe that rentailers,
studios and consumers can all benefit from it."

With that
attitude and the mutually positive reaction from Warner Bros., it
seems likely that other movie studios will follow in suit, signing
agreements to cut inventory cost in exchange for no more new
rentals. Netflix is reportedly in advanced talks with Fox and
Universal as well. Other unnamed studios are also discussing
similar plans with the rentailer.

For both Netflix and the
movie studios the plan is a risky gamble. Without new rentals,
Netflix risks being undercut by Blockbuster. While the
inventory cost cuts ultimately result in a greater monetary gain on
paper (as 70 percent of Netflix rentals are from older catalog
titles, with approximately 30 percent coming from new releases),
whether customers will stomach the change is questionable.

Likewise
for movie studios, if customers do accept the deal, but it
does not significantly affect buying rates/piracy, the studios stand
to lose a great deal of money offering movies to Netflix at greatly
reduced rates. In all likelihood, the biggest loser, though,
will be Netflix customers who may soon lose access to the hottest new
rentals, which Blockbuster will continue to provide.

Comments

Threshold

Username

Password

remember me

This article is over a month old, voting and posting comments is disabled

I don't have to tell block buster go to "eff" off.....they are closing down in droves around me already...

i know of two at least -- the one that used to be my preferred one location wise -- yeah its now a dunkin donuts, then about 2 miles from that one another block buster just closed. Finally, my parents told me that their's is closing this month -- they only live about 10-15 miles from me.

So all in all I think BB is on the way out anyway...at least around here.

All of the Blockbusters closed down where I live. There are some mom and pop shops but I use Netflix exclusively. Super convenient. Kind of pissed about the new releases but not going to jump ship just yet. I'll wait and see what Blockbuster does first.